The BBC Trust has given its provisional approval to the BBC's involvement in Project Canvas, saying that the likely public value of the proposal justifies any potential negative market impact.

Project Canvas is a joint venture between the BBC and five other partners to develop and promote a common standard that would allow viewers with a broadband connection to watch on their television sets on-demand services, such as the BBC iPlayer or the ITV Player, and other internet content, as well as ordinary linear television content. This would be via a device such as a set–top box connected to the internet. Viewers would have to have a broadband subscription but would not pay any additional subscription for the content.

The Trust has reached its provisional conclusions after a rigorous process of assessment, evaluating the evidence gathered and put to it about the proposal. There were more than 800 written consultation responses from individuals and industry stakeholders, and the Trust also spoke to more than 60 industry stakeholders and considered a range of other research.

The Trust is proposing some conditions on the BBC's participation in the venture, to secure public value and lessen any adverse impact Canvas might have on the wider market, where possible.

There will now be a period of consultation on the provisional conclusions closing on 2 February 2010, after which the Trust will reach its final decision.

The Trust's decision is based on a Public Value Assessment and Market Impact Assessment that it has carried out on the proposals put forward by the BBC Executive. The Trust also took into account its own legal and regulatory responsibilities (including the BBC Fair Trading regime) and comments on the proposal made by industry stakeholders and licence fee payers. Details of the Public Value Assessment and Market Impact Assessment and the conditions of approval are below.

Trust's Public Value Assessment
The Trust concluded that Canvas has high public value.

• It will add a new dimension to digital terrestrial TV by enabling an increase in the range of content and services available on the platform.
• It is intended to provide a high-quality user experience with a simple and consistent look and feel.
• There will be low barriers to access for new producers/providers of content who wish to get onto the platform – allowing a new range of low-cost services the opportunity to flourish.
• The creation of an open joint venture and engagement with industry can help deliver a common technical standard with features currently unavailable in the market.
• It may also help drive broadband take-up.

Canvas is therefore consistent with the BBC's public purposes including helping deliver to the public the benefits of emerging communications technologies and services.

Trust's Market Impact Assessment
The Trust concluded that Canvas will affect a range of existing markets.

Positive impacts include:

• Growing demand for on-demand content on TV and, to a lesser extent, residential broadband.
• Offering a greater number of Internet Service Providers the opportunity to develop "stronger triple play" (phone/TV/broadband) offerings.
• Offering new entrants providing content to the market an accessible and affordable platform to reach the public.
  
  Potential negative impacts include:
  • It could slow the future growth in subscribers to some pay TV services.
  • Contributing to the long-term shrinking of DVD rental and possibly retail markets.
  • Negatively affecting existing or new smaller hybrid DTT/IPTV platforms.
  The MIA also looked at the impact on ISPs' costs: video content is a heavy user of broadband capacity ("bandwidth") and Canvas may mean more video content needs to be carried. While there will likely be an increase in the cost base for some ISPs who support Canvas (given the greater bandwidth involved), it could also provide an opportunity for those ISPs to introduce differential charging.
  
  Industry engagement
  The Trust believes that the BBC should, as far as possible, engage with the wider industry to develop Canvas as a common, open standard. We have reflected this in our conditions below.
  
  Main conditions of provisional approval
  The Trust proposes to place a number of conditions on the BBC's participation in the joint venture. Many of these are designed to secure elements of the proposal where we saw particular public value as well as lessen negative market impact where possible. These conditions cover:
  • Industry engagement – the core technical specification must be published well in advance of launch to allow all manufacturers to adapt to the Canvas standard. The BBC must report to the Trust within twelve months of final approval or within three months of launch, whichever is the sooner, and at regular intervals on its progress in achieving industry consensus around technical standards.
  • Access to the platform for content providers – must be on fair, reasonable and non-discriminatory terms, with minimal technical requirements and content standards and access charges calculated on a cost recovery basis.
  • Access for ISPs - any quality standards for ISPs should again be set and applied on a fair, reasonable and non-discriminatory basis. This is designed to keep barriers to entry for ISPs to a minimum and avoid the proposal being linked to any one provider or service.
  • Syndication – a Trust review, twelve months after launch, to assess what, if any, effects Canvas has on the partners’ incentives to syndicate their content to other platforms.
  Other key conditions of the BBC's involvement are designed to ensure public value:
  • Free-to-air – it must always to be possible to access the Canvas platform without a subscription.
  • Accessibility and usability – one year after launch, the BBC must report to the Trust on whether the proposed accessibility features, such as audio description, have been incorporated. At that point the Trust will also review signposting of content and parental controls, which we have asked Canvas to provide where possible.
  • Cost – the BBC must return for further Trust approval should costs incurred by the Corporation exceed (or be expected to exceed) the Executive's projections by more than 20 per cent in any one year.
  Finally, there are some conditions to ensure compliance with the law:
  • An independent audit must be carried out of relevant BBC research and development spending in order to verify that pre-launch Canvas-related BBC expenditure costs have been or will be shared equally between the partners.
  • Where the BBC has already or proposes to frontload project spending by making initial commercial loans to the other Canvas partners, loans should also be available to the other or any new partners of the same creditworthiness on commercial terms.
  • BBC involvement in Canvas must be kept operationally separate from its involvement in Freesat and Freeview.
  Next steps
  
  The Trust will now consult with members of the public and industry stakeholders on its provisional conclusions and then seek to publish its final conclusions as soon as possible after this.